Financing Wind Power in a Crisis Situation:

A Global Emerging Market Perspective

Dana R. Younger

International Finance Corporation

AEE Wind Energy Convention 2011

IFC was established in 1956 to promote private sector

development and is a member of the World Bank Group

2

IFC Power Sector Wind Power

Provides equity, quasi-

equity, debt, risk

management and advice in

179 member countries

FY10: Committed

US$12.7bn, Mobilized

US$5.3bn, Portfolio

US$48.8bn, 528 New

Projects, 103 Countries

Committed US$6.8bn in 205

transactions in 53 countries

Invest in generation,

transmission and distribution

Many firsts: largest wind farms in

LAC and SE Europe, largest solar

farm in SE Asia, first merchant

wind farm etc

Huge growth in all RE: wind,

solar, geothermal, hydro, biomass

Committed >1GW in China,

India, Bulgaria, Chile,

Turkey, Mexico

Strong pipeline in Morocco,

India, Romania, Pakistan,

Philippines, South Africa,

Uruguay, Mongolia

Technical expertise and

sector knowledge/network

No

. P

ow

er

Tra

nsa

ction

s

43%

71% 76%

0%

20%

40%

60%

80%

-

5

10

15

20

25

30

35

2008 2009 2010

% R

enew

able

Key Wind Emerging Markets

GigaMarkets : China ~44GW & India ~13GW

Large Non-LAC Markets: Turkey 1.4GW, Poland 1.1GW, Egypt 550MW, Romania 462 MW, Bulgaria 375MW, South Korea 364MW, Hungary 295MW, Morocco 287MW, Czech R. 215MW, Lithuania 154 MW, Estonia 149MW, Ukraine 87MW, Croatia 69MW, Tunisia 54MW, South Africa 45 MW, Latvia 31MW, Vietnam 30 MW, Pacific Islands 33MW, Philippines 25MW

LAC Leaders: Brazil 1GW, Mexico 530MW, Chile 168MW, Costa Rica 125MW, Nicaragua 63MW, Caribbean 66MW, Argentina 55MW, Uruguay 40MW, Colombia 20 MW

Uneven Market Growth except in China & India

Regional Breakdown - - Latin America Lags

SS

4

Latin America - - Only ~2GW installed

5

0

10000

20000

30000

40000

50000

60000

70000

80000

Europe Asia Pacific North America

Latin America

Middle East/Africa

530MW

1GW

168MW

55MW

188MW

66MW

20MW

40W

Tota

l M

W Insta

lled

Drivers of the Wind Sector

1. Abundant natural resource

― Oaxaca, N.E Brazil, Patagonia, Colombia, Costa

Rica/Nicaragua border, Caribbean trade winds

2. Competitively priced equipment

― Increasingly competitive manufacturing sector

3. High power prices or suitable regulations: (“TLC”)

― Fundamental and will define future in region

4. Availability of long, cheap financing

― A function of regulatory environment with TLC

6

Pros and Cons of regulatory support systems used for wind in

different regions of the world

7

Feed In Tariff (“FiT”) Portfolio Standards Auctions Tax Incentives

Description Fixed price per kWh

for all projects of a

technology type

Required % of all

power to be sourced

from RE, often

twinned with RE

credit system

Competitive tendering of

capacity for specified

technologies

Accelerated depreciation and

other tax and investment

incentives

Strength • TLC [Transparency,

Longevity, Certainty]

• “Pull” incentive

• Drives competition

btwn RE techs

• Can achieve exact

vol. target

• Cost efficient

• Combination of mkt

efficiency and

guaranteed price

• Greatest regulator

control

• Rapidly pays down capital cost

Weakness • Burden on govt. or

consumer

• Long-term liability

• Getting it right is

hard

• Low TLC

• Price volatility

• Disadvantage some

RE techs

• Complexity

• Bureaucracy

• High transaction costs

• Favors large players

• Risk of non-delivery after

aggressive bidding

• Burden on govt. finances

• Stop start with availability of

profits to right off

• Less operating incentive

• May disadvantage some RE

techs

Application • Europe

• China

• UK

• USA

• Chile

• Brazil

• Uruguay

• Argentina

• USA

• Central America

Regulatory responses to wind

8

Brazil:•Proinfa as FiT with

allocation rules

•1st & 2nd dedicated

wind auctions too

aggressive?

•Improved funding

and equipment

terms could ignite

market

Chile:•NCRE Portfolio

Std began 2010

•Strong TLC

•But small hydro

may dominate?

Argentina:•Successful tendering

but lack of TLC may

effect bankability

Peru:•Successful

tendering but

tariff cap too low?

•Altitude

constraint on

resource?

Colombia:•No specific support

•Sector hydro dominated

•Could quality of

resource be enough?

Key:

Auction

Portfolio Standard

Tax Incentives

Feed in Tariff

No Specific Support

Mexico:•Autogeneration

with wheeling/

banking support

•CFE tenders

Honduras:•Autogeneration

and tax

incentives

•Not wind specific

Cost Rica &

Panama:•No specific

support

Nicaragua &

Guatemala:•Tax incentives but

not wind specific

Chile Wind Market

Strong Technical Potential (>20GW) - - Chile University Wind Atlas in preparation

Seven projects in operation totaling 168 MW

2 MW Alto Baguales isolated wind farm in Region IX run since 2001 by Edelaysen/Grupo SAESA

18 MW Canela wind farm in Region IV by Centinela/EcoEndesa at “Totoral” site -1st SIC interconnected wind project – started in 2007 with Vestas 2 MW WTGs

“Totoral” site potential of 140 MW incl. 46 MW Norvind project of Centinela/SN Power with Vestas 2 MW WTGs - - 168 MW installed

Major developers: Mainstream Renewable Power/ Andes Energy, SN Power, Acciona/ Endesa, Pacific Hydro, Iberdrola, AES Gener, Sowitec, Seawind, Handelsund Finanz, NaturalPower, etc.

Local Players: Centinela, Chilquinta, Chilectra, Enorchile, Nova Energy, ServiciosEolicos, Eco Ingenieros, etc.

New RE Law provides incentives for wind via RE Portfolio Standard for all large generators

>450MW at advanced stage - still merchant risk due to lack of guaranteed FiT

10

Norvind S.A. Case Study

Investment Summary:

Timing:

Why Norvind:

IFC Value Added:

US$30.75 million senior “A” loan and arranged US$30.75

million “B” loan package among co-lenders to fund US$140

million 46 MW project

Nine months from mandate letter to first funds

disbursement for Totoral wind farm in Chile

SN Power is highly experienced and efficient hydro utility

with some wind experience in Norway; Vestas V90 turbine

technology (2 MW geared turbines, Class III wind) and 3

year services agreement; Centinela was strong local

development partner

Experience with Chilean power sector; Very long loan

maturities (18 years); First merchant wind project with very

limited recourse; Creative financial structuring of debt

package with B loan fully subscribed by DnB Nor

IFC’s Recent Mexico Wind Transactions

11

EVM La Mata – La Ventosa Eurus

Installed Capacity 67.5 MW 250 MW

Sponsor EDF Energies Nouvelles (France) Acciona (Spain)

Turbines Clipper C-89 2.5 MW Acciona AW70 1.5 MW

Wind Class S Class S

Off-Take 15 yr PPA with Wal-Mart de Mexico 20 yr PPA with Cemex

Project Cost ~US$200m ~US$560m

IFC Role Mandated Lead Arranger Mandated Lead Arranger / Bookbuilder

IFC Investment MXN 310 m Senior Loan (14yr)

Mobilized US$15m donor-funded

Mezzanine Tranche (15 yr)

US$71m Senior Loan and Mezzanine

Tranche (15 yr)

Outlook for future growth of wind

12

Brazil and Mexico will continue to dominate market in

near term, Brazil has greatest scale potential

Near term opportunities:

―Responding to regulation: Chile, Uruguay, Peru, CR

―Responding to higher power prices: Colombia,

Nicaragua, Jamaica, Honduras, DR, Panama

Argentina’s potential constrained by regulations

13

Other IFC Investments in Wind Power

AES GEO Energy (Bulgaria, 2008): EUR 40 million IFC “A” loan and EUR 32 million “B”

loans for 156 MW St. Nikola Wind Farm near Kavarna using Vestas V90 3 MW turbines; AES is

IFC’s largest utility client in wind energy and power sectors

China Windpower Group (China, 2010): US$10 million in equity along with US$45 million “A”

loan and US$95 million in “B” loans to construct a US 150 million 201 MW greenfield wind farm

in Gansu using Sinovel 1.5 MW turbines

Zorlu Enerji Rotor (Turkey, 2010): EUR55 million in long term debt to finance 135 MW

greenfield wind project using GE 2.5 MW turbines

Gamesa (India, 2011): EUR 11 million to finance the company’s manufacturing operations in

Chennai, India to produce 2 MW turbines.

Goldwind (China, 2011): U$ 75 million equity investment to help finance the company’s IPO in

Hong Kong in order to fund capital expenditure and R&D in China.

Other wind projects under review: India, China, Romania, Pakistan, Sri Lanka, & Mongolia

For more information:

www.ifc.org

14

Thank You!

dyounger@ifc.org

202 473 4779